Last night I was looking at the Stockopedia ranks tab of my portfolio of 31 stocks and I noticed something rather curious. There were plenty of dark green (i.e. rank scores over 90) in the quality and momentum columns, but the value column looked rather grey (i.e ranks between 20 and 79).
I downloaded the tab into a spreadsheet to do some more analysis. The average for each rank was as follows:
Quality = 87
Value = 71
Momentum = 79
The number of stocks scoring 90 or over for each ranking factor was:
Quality = 15
Value = 4
Momentum = 19
The distribution of momentum scores was quite wide with a few with very low scores (i.e, PLUS and LRM) but with a clear majority in the 90s. This is not surprising as the portfolio has had a very good run recently increasing in value by over 20 per cent since the beginning of the year (even after the recent PLUS debacle).
However, the relatively low scores for value make me wonder if this means that this recent good run has caused my portfolio to become overvalued? Out of curiosity I performed a similar analysis for all StockRanks current scoring over 90 and got the following results:
Quality = 82
Value = 76
Momentum = 80
The general pattern hints at something similar and that perhaps true value stocks are getting harder to find. In any case, this has certainly got me thinking about how the composition of the ranking factors in a portfolio may change over time.
My assumption had been that by basing my portfolio on high StockRanks I was buying more or less equally into quality, value and momentum factors. This may be true when purchasing stocks, but it certainly does not seem to stay this way. It could be argued that my portfolio has become overvalued and overly reliant on momentum. For example, JD, MNDI and BDEV have all done very well this year, but their value ranks suggest they are all looking rather expensive.
I am wondering then whether it would be prudent to seek out some high ranking value stocks (with reasonable quality and momentum factors) to restore some balance across the ranking factors.
For me this is the natural flow of my portfolio and I'm very happy to see it occur as it generally means the selection has increased in share price. The value rank can adjust sharply though once quarterly results are fed through into the Stockopedia rankings.
For me the rebalancing of my portfolio happens when my selling criteria are met (lost momentum monitored with manual trailing stop losses) whereas you appear to be considering selling when value has been achieved (however that is defined). Any funds released are used to purchase any new selections.
Best of luck
Phil
